How Rajesh Mehta Found His Midas Touch During Recession

Rajesh Mehta steered his jewellery manufacturing and export business through the recession, and doubled profits in five years. The real test now lies in expanding his retail venture

By N.S. Ramnath, Bharat Bhagnani
Published: Nov 16, 2012
RAJESH MEHTA will need to establish 500 stores by 2016 to meet his targets
Image: Mallikarjun Katakol for Forbes India
RAJESH MEHTA will need to establish 500 stores by 2016 to meet his targets

Name:  Rajesh Mehta
Profile: Chairman, Rajesh Exports
Rank in the Rich List:  57
Net Worth:  $1.1 bln
The Big Hairy Challenge Faced in the Last One Year Expanding retail footprint. To finetune a model to help grow revenues from 3.5 percent in 2011 to 55 percent in 2016
The Way Forward Wants to expand retail outlets to 500 by 2015 across India from the current 80; expects to start gold mining in Rwanda next year

The headquarters of Rajesh Exports (REL) in Bangalore looks worn, a far cry from what you would expect from India’s leading exporter of gold jewellery. The nameplate, too, is shorn of frills, with black fonts painted on a cheap, white tin board. Inside the founder’s room is a fax machine that’s at least a generation old. The cellphone the 48-year-old uses is a low-end Nokia. “It serves my purpose,” says Rajesh Mehta, the protagonist, with a poker face. Mehta’s son, in charge of strategy and investor relations at Rajesh Exports, sits in a small room that housed computer servers not long ago. It’s still labelled ‘server room’.

Tightfisted? Yes. Hard times? Hell, no. The numbers will tell you why. The revenues of REL jumped from Rs 8,187 crore in March 2008 to Rs 25,653 crore in March 2012. That’s an increase of over 213 percent in five years. During this period, its profits doubled from Rs 206 crore to Rs 412 crore, weathering the slump in 2009 and 2010, when profits dropped as REL cut its credit lines to customers and started offering discounts.

The company also boasts of the biggest manufacturing facility of gold jewellery in the world—with a capacity of 250 tonnes—and is the top exporter of gold jewellery in the country. Behind the native frugality of the man hides the story of an entrepreneur who goes about his business with aplomb. “We don’t believe in showing off. We believe in our business, we believe in stretching our assets, and we believe in growth,” says Mehta. Last year, he ranked the 57th richest man in India with a net worth of $1 billion. This year, he is holding on to the rank but his net worth has gone up to $1.1 billion.

Mehta waded into the world of business in his teens. He was a good student, but chose business over university education. He started by helping out his father, who had moved to Bangalore from Gujarat and was running a business of supplying accessories and artificial gems to jewellers. Mehta visited his father’s customers to supply goods, collect money and so on. A keen observer, he soon realised there was inefficiency everywhere. He sniffed an opportunity to provide efficient services and make money.

In 1982, Mehta borrowed Rs 2,000 from his brother and another Rs 8,000 from a bank and took his first steps as an independent businessman. He went to Chennai, bought silver jewellery from the local smiths and sold his wares to shops in Gujarat. He notched up a profit of Rs 3,000 to Rs 4,000, quite a big sum those days. With that money, Mehta bought jewellery from Gujarat, returned to Bangalore and earned a neat sum selling newer designs. From Bangalore to Chennai again and the cycle continued. Each trip made him richer, and he began to wonder why no one manufactured jewellery from a centralised location to benefit from the economies of scale.

When he asked around, jewellers told him it was because of the regulations. One day, he read up the Gold Control Act and realised that though it prohibited manufacturing of ornaments that had more than 14 carat purity, and put restrictions on primary gold a dealer can hold (400 grams to 2 kg, depending upon the number of goldsmiths he employed), all these norms were relaxed in case of export. So, he set up a small plant in Bangalore and visited the UK to get orders. He stayed with a distant relative and made tours to London retailers, promising them a good price and delivery on time. The dealers were initially reluctant, but he got some orders. And that’s how his business took off.

As REL expanded and the Gold Control Act was repealed, he went for an IPO, raised money, set up a bigger plant, and by 2000 was thinking of setting up an even bigger one. The 250-tonne capacity unit started production in 2003. The scale gave him the economy. While the global average of wastage in gold production is 3 percent, for REL, it’s 0.25 percent.

Meanwhile, the domestic market for gold was booming. India buys 850 tonnes of gold every year, and nine-tenths are consumed in the form of jewellery. It reaches the customers through four lakh retailers (and 8.5 lakh goldsmiths). The market was fragmented and 96 percent of it was unorganised. But since 2005, the organised sector began to grow at 40 percent a year. So far, Mehta made most of his money from exports. By now, he was ready to enter the frontend with his unique proposition: Offer a price that nobody can imitate.

DV Harish, who runs Davanam, a small chain of jewellery stores in Bangalore, and who has known Mehta for close to 25 years, says he always had the ambition of building an organised retail chain. “He used to talk about it in early ’90s, even before we had the likes of Tanishq and Reliance.”

Typically, when a jeweller wants to expand, he sets up a large format store in a key commercial district with much fanfare. For example, when Joyalukkas (brand based in the UAE) came to Bangalore, it took a prime property on MG Road. One of its stores in Chennai’s T Nagar, which sprawled over five floors, won a place in the Limca Book of Records as the world’s largest jewellery showroom.

But Mehta came up with a model that placed him on the opposite end of the spectrum. Instead of building huge showrooms or convincing businessmen to invest in new shops under a franchisee model, he approached existing small-time retailers (neighbourhood jewellery shops) catering to a local clientele. That’s how ‘Shubh’ was born in 2010. While REL supplies the inventory and takes care of the advertising, the stores were rebranded and started to earn a commission for selling the wares at a price fixed by REL.

Mehta believes the key selling point of his plan is the pricing. Usually, jewellers charge more than the quoted gold price on account of wastage, making, and other expenses. At Shubh, the customers will be charged actual rate per gram (the weight multiplied by quoted price). As of today, the number of retail outlets has increased to 73 (apart from seven stores that came as a part of REL’s Oyzterbay acquisition in 2007). Son Siddharth (22), who is in charge of strategy, says the company plans to expand to other southern states and eventually make its foray into north India.

And that can be quite a challenge given that Shubh will be up against Titan Industries, which has cracked the pan-India code with three chains—Tanishq, Goldplus and Zoya. With 163 stores across more than 4.6 lakh sq ft retail space, the Titan trio has raked in last fiscal Rs 7,064 crore in revenue, a growth of 40 percent over the previous year, and profits of Rs 698 crore, a rise of 44 percent. In comparison, Shubh hardly has anything to write home about and will face its real test when it ventures out of its home state of Karnataka.

Last year, Mehta drew up a five-year-plan that he calls Mission 2016. A crucial element of it involves turning REL into a retailer, as retailing yields more margins than manufacturing and wholesale. Last year, retail contributed about 3.5 percent to its revenues and 11 percent of profits. By 2016, Mehta wants it to contribute 55 percent of its revenues and 85 percent of its profits.

That would mean having 500 stores. By no measure an easy task. “Till now, jewellers who’ve tried to expand beyond their regions haven’t been much successful,” says Sandeep Kulhalli, vice president, retail and marketing, Tanishq.

Mehta is confident of converting the small retailers into Shubh associates. The company has an R&D team that’s focussed on bringing out new designs, and has a library of over 30,000 active designs. And, more importantly, it has the advantage of being a large and efficient manufacturer with a distribution network. So, it can cut down middlemen. “We tell our associates that our designs are difficult to imitate and our prices are impossible to match,” says Mehta. If such hardselling doesn’t work, REL is also looking at the opportunity of opening a store nearby and selling jewellery at low prices.

DV Harish says the businessman Mehta resembles most is Dhirubhai Ambani, not because he is also a Gujarati, a vegetarian and has the same tightfisted approach to finances, but also because of his vision and faith in forward and backward integration. In Rajesh Mehta’s scheme of things, it doesn’t end with manufacturing and retail.

In 2009, he set up a gold refining facility in Uttarakhand with a capacity of 100 tonnes. Around the same time, he put together a team to explore mining opportunities in Africa. Ravi Chandra, who is in charge of the mining division says it has got exploration licences from Rwanda, Uganda, Sudan, and Ethiopia among others and have been testing the samples for gold at its labs. “Gold is there, but what you have to look for is whether it makes economic sense to extract it.” So far, the most promising samples have come from Rwanda, he says, and the mining operations there could start as early as next year.

Yet another way in which his approach to business resembles Dhirubhai’s is the use of debt. REL has huge cash balances (Rs 7,854 crore as of March 2012), thanks to the 240-day credit it gets from the suppliers and cash sales to its customers. Still, its debt has ballooned to Rs 3,256 crore from Rs 970 crore in 2007-08, suggesting a Dhirubhai way of using debt and simultaneously maintaining cash balances. It is done to take advantage of lower interest rates prevailing in the market and use that money in the business, instead of dipping into your own reserves, which have a higher cost of capital. It helps that interest saves taxes.

One of the ways in which REL deploys its cash is through funding real estate companies. Vijayendra Rao, who is in charge of its Inter-Corporate Deposits (ICDs) business, says it has an exposure of Rs 800 crore to real estate developers. He joined REL four years ago from Hindustan Unilever, and with no experience in dealing with ICDs. He says Mehta not only taught him the business, but also how to drive a hard bargain.

It’s the same skill that Sripada Prasanna Kumar, who was a scientist at ISRO before joining REL 12 years ago, hopes will help create value in his line of business. He is in charge of the infrastructure business, an area that REL is venturing into. It was created to monetise its land bank of over 130 acres. Now, it’s also looking to build townships around Bangalore. Kumar believes the principles that worked in jewellery business—of offering real rate per gram—will work in infrastructure too. The logic is simple: Keep costs low and pass on the benefits to customers.

Part of Mehta’s lessons in economy is shaped by Gandhi’s ideals. The rest has been inspired by a typical Indian household, struggling to make ends meet. “My inspiration comes from a family that’s running a restaurant or a shop. They work hard, they stretch their resources. The idea is to bring in that attitude in a big company,” he says.

One of the pitfalls of being a big player is that it nurtures bureaucracy and, over time, becomes the breeding ground of inefficiency. Mehta’s solution is to create a modular structure. It has two elements to it. One, the processes are well defined. “You don’t have to hire better people, Instead you have to organise work better,” he says. Two, they work in small teams with clear goals and rules. For example, REL has 55 people to manage 80-odd stores. The 55 is actually an aggregation of 15 teams with three or four members in each team managing five or six stores.

Mehta, whom his colleagues describe as intuitive, says his inspiration comes from nature. “If a tree falls, a mountain doesn’t come down. In our bodies, if a finger is cut, the eyes don’t stop functioning. The modular structure works in the same way. It doesn’t need MBAs to run it. In fact, I don’t prefer big names, IIMs.”

The model has its drawbacks, one of them being it’s too centralised. Mehta spends 18 hours in the office, straddling several activities. He takes all the key decisions. But the good news is that it takes the pressure off his senior team, so they can just execute. It also complements what his brother, Prashant Mehta, REL’s managing director, is good at—execution. The duo has to work in clockwork precision because, together, they have a mountain to climb.


(This article is excerpted from the latest Forbes India 02 November, 2012 issue which is now available at news stands and book stores. You can buy our tablet version from

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  • Richest Man In India

    Mehta is a Richest Man In India. He had more hardwork in his past life. If anyone want to be rich like, you must have to do hardwork and good planing to reach your goal. No man can earn his goal without struggling. So hardwork equals struggle and struggle equals rich.

    on Mar 23, 2013
  • Manoj

    If memory serves me right, one key advantage that helped Rajesh Exports generate large surpluses in 90\'s was a loophole in the now changed DPEB scheme for exporters. The difference appears to be that REL re-invested the gains into the business, rather than squirelling it out to live big like many others. No surprises here, as meteoric rise of many enterpreneurs of 90\'s in capital starved India is due to (a) leveraging \"friendly\" netas or (b) exploiting archaic laws that the parliament never thought to change while ushering in privatization, or both. However, such models are unsustainable in the long term. With Indians turning less tolerant of crony capitalism (see the stock prices to get a sense), enterpreneurs need to re-invent themselves to compete in the marketplace through real innovation, operational efficiencies, products that address customer needs etc.. REL seems to be taking steps to retain its\' growth in the future. If this happens, Indian with their huge appetite for gold, will rejoice...

    on Nov 20, 2012
  • Arjun

    Rajesh Sir First half of story....Hats off to You.....I wanted to buy ur shares Secong half of story....Cool down dude....If i was an investor i would sell all my shares ASAP.....Lending to Real Estate, Doing Infra.....Not your cup of tea....even Reliance with Mighty Mukesh and his trusted people are facing problems in Urban Land Infra their Real Estate Investment Vehicle....Biyani\'s (Pantloon) faced an issue with his Venture (i forgot the name).....An old prverb Stick to our knittting (or your core compentence)

    on Nov 16, 2012
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